For perhaps the first time in Seattle’s history — and in a rare move for a city where there is no income tax — the city could tax capital gains from sales of assets like stock under a new proposal from Councilmember Andrew Lewis.
This comes amid a flurry of tax proposals from other City Council members, but this tax would be for one purpose: building housing for Seattle’s homeless.
“If you really want to get at inequality in America, you have to start taxing capital gains and the selling of stock,” Lewis said. “It would only impact 30% of Seattle taxpayers, including myself — so I would be glad to pay this tax.”
This tax responds to a coalition of leaders in both business and homeless services, who announced an effort last month to put $1.6 billion into building thousands of housing units for chronically homeless people, paid for by the state, county, surrounding cities, and businesses.
How each party, including the business community, would add their resources wasn’t spelled out in the proposal: The business leaders in the coalition didn’t take the idea of taxing big businesses off the table — in fact, several have favored it.
The city of Seattle already put some money toward the proposal’s goals: Earlier this month, the city announced it would build 500 units of housing on a sped-up timeline, committing up to $60 million of funds from the city’s housing levy, according to a spokesperson for the city. The city wouldn’t specify what timeline — just that it would be shorter than the typical 2 or 3 years from ribbon-cutting to completion.
The council already is considering a new tax on big businesses, with Councilmembers Kshama Sawant and Tammy Morales championing one version and Councilmember Teresa Mosqueda advancing another. Lewis doesn’t see his proposal as competing, he said, because it would be directed at households rather than companies. But the council may be wary of passing multiple taxes this year.
Structured as an excise tax on sales of assets, Lewis’ tax would exclude real estate and retirement accounts, and would be capped at 1%. Even with those exclusions, Lewis expects it to generate around $37 million annually.
It’s the first capital gains tax to be proposed in Seattle in recent history, according to John Burbank, executive director of the Economic Opportunity Institute, who pushed for the City of Seattle’s proposed “wealth tax.” That tax was ruled unconstitutional last year by the state Court of Appeals, which left open the option of a 1% tax on net income that Lewis is hoping to take advantage of with this new tax.
While many large cities such as New York have an income tax that incorporates capital gains, Burbank said he doesn’t know of any cities that just have a tax on capital gains alone.
Both Burbank and Lewis expect the capital gains tax to end up in court.
“I understand that it’s in the bounds of 1%,” Burbank said. “What will be tested is if you can exclude capital gains from residential property sales. That’s an interesting exclusion to say the least.”
But former councilmember Nick Licata, who Lewis worked for as a campaign manager once, thinks excluding property sales is politically smart.
“That immediately would build an opposition, both from homeowners and the real estate industry,” Licata said.
Suzie Burke, owner of Fremont Dock Company, was one of the plaintiffs in the lawsuit against the wealth tax that went to the state Court of Appeals: She said this tax has the same problem as the wealth tax in that it’s not distributed equally across the populace, but is just a tax on people with more wealth.
Burke also said the ultra-wealthy often have ways to dodge capital gains taxes, while local business owners are stuck paying them.
“Don’t let them fool you about who ends up paying these taxes,” Burke said. “Because big guys have ways to get out from under taxes. They can put their money into things that the taxes are deferred. They can put their money into things they can get depreciation and write off. … It’s the little guy.”
But not all local business owners disagree with the idea of a capital gains tax. Howard Wright, chair and founder of the Seattle Hospitality Group and a member of the coalition of business and homeless service providers, said he likes the tax, but he’d like to see a sunset.
“Whenever you put a tax in place forever, an evergreen tax, they’re really hard to retire. Let’s say it has a funding mechanism that has to be renewed every 5 years,” Wright said. “Tie it to key performance indicators. … Is it making a difference? And if not, it sunsets.”
A spokesperson for Councilmember Lewis said the current version has no sunset.
Wright also speculated that with a flurry of new taxes being proposed just in Seattle, King County will need to step up or more businesses could make the jump across Lake Washington into other neighboring cities.
“These are all Seattle proposals, and I’d like to see a Puget Sound proposal or a King County proposal,” Wright said. “I don’t want to see a ‘get outta town’ card. The Welcome-to-Bellevue gift tax. This really has to be a regional solution.”
A previous version of this article, based on a previous draft of Lewis’ tax, described the legislation as excluding only home sales and generating $40 million in revenue. Lewis’ office has revised the tax to exclude all real estate, which lowered the estimate to $37 million.
Seattle Times reporter Daniel Beekman contributed to this report.